COMPANY NEWS; Chain of Mental Hospitals Faces Inquiry in 4 States

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Law enforcement officials in several states have begun investigations of one of the nation's largest private psychiatric-hospital chains on charges that it systematically misdiagnosed, mistreated and abused patients to increase its profits from insurance claims.

Over the last decade, the company at the center of the investigations, Psychiatric Institutes of America, the operator of 73 hospitals and treatment centers across the nation, has been regarded as one of the most modern, profitable and prestigious enterprises in the fast-growing industry of private psychiatric hospitals.

Its Fair Oaks Hospital in Summit, N. J., for example, is widely known as a center for research and treatment of drug addiction. In the 1980's, celebrities praised their treatment there and its doctors were models to many health professionals of a new generation of psychiatrists as entrepreneurs.

The investigations, under way in New Jersey, Texas, Florida and Alabama, involve complaints from those and other states, law enforcement officials say.

But health authorities say that questions about these institutions are part of a broad, accelerating crisis in the private, for-profit psychiatric-hospital industry, an enterprise that has grown rapidly in the last decade. At its heart is a fierce argument about their quality of care, rising costs and attempts to balance the needs of patients with the search for profits.

Concern about the possible abuse or overuse of mental-health services is especially great now because the costs associated with these practices have become an important factor in driving up the nation's overall health costs -- now 12 percent of the gross national product.

"One of the big questions facing American psychiatry is whether or not the profit motive in hospitals drives people to do things that are unacceptable ethically," said Dr. Paul Fink, a former president of the American Psychiatric Association. "That doesn't mean every private psychiatric hospital is bad. It means that some people who tie their jobs and their world to the bottom line are going to seek patients in every way they can."

In more than 200 complaints to law enforcement officials in New Jersey, Florida, Texas and Alabama, and in an extensive series of interviews, former patients, their relatives and former staff members made these charges, among others:

*The company's hospitals in New Jersey, Florida and Texas admitted patients who did not need hospitalization. In Texas, the State Attorney General says the hospitals hired "bounty hunters" who "kidnapped" patients with medical insurance.

*In Florida, former patients and their families charged in lawsuits that the hospitals kept patients against their will, or even against the wishes of their families, including, in one case, a 3-year-old child.

*In some cases, the hospitals kept patients until their insurance ran out, whether they needed such hospitalization or not, according to law suits and former staff members in New Jersey, Florida and Alabama. In other cases, the hospitals are said to have released patients as soon as their insurance was exhausted whether they were ready to be diswhether they were ready to be discharged or not.

*Hospitals in a number of states awarded bonuses to top staff members as incentives to keep patients for longer stays, former staff members said. Company Defends Treatment

A spokesman for the company, which is a subsidiary of National Medical Enterprises Inc. of Santa Monica, Calif., said that charges against the hospitals were made by a small number of former employees and that treatment at most of the chain's hospitals was beyond reproach.

"Patients are admitted by physicians when physicians determine that it is medically necessary to do so," said the spokesman, David Olson. "The overwhelming majority of patients are the subject of outside third-party utilization review or case management."

Charges of kidnapping, altering diagnosis, or any altering of medical tally false, he said, adding that it is ending the practice of paying staff bonuses on the basis of the number of patients in hospitals.

Nonetheless, Mr. Olson said, the company recently hired two law firms to conduct a review of practices at all its hospitals, and the top executive overseeing the psychiatric hospital subsidiary, Norman A. Zober, left his post on paid leave earlier this month.

Mr. Olson said that National Medical Enterprises did not comment on cases of individuals. In Florida, dozens of former patients from the company's two hospitals in Palm Beach County have registered their complaints, often in public demonstrations outside the hospitals. Bill Coakley, an organizer of the demonstrations, pointed to a number of examples. These and other former patients made themselves available for interviews after several of them found they had had similar experiences, formed patients' advocacy groups and decided their stories should be made public. Admitted for Anorexia

Kelly Dewald, a Palm Beach County resident, said she voluntarily admitted herself to the company's Lake Hospital of the Palm Beaches in Lake Worth for treatment of anorexia four years ago when she was l7 years old. She said she received little treatment for the eating disorder but instead was put on antidepressants that brought on hallucinations and paranoia. After 34 days, when her insurance ran out, she said she was summarily discharged and told her treatment was over.

"At this point I was left with nothing," she said. "But one week after I stopped taking medication, the violence, the fear and paranoia disappeared."

Her bill, for nearly $26,000, included charges of $3.75 for one Bufferin tablet and 30 biofeedback sessions at $150 each. She said that she had been unable to get anyone at the hospital to take her complaints seriously, and that she had talked to a lawyer who said she would probably lose if she went to court.

Charges at Psychatric Institute hospitals in Florida and New Jersey often run from $700 to $1,000 a day. The costs of residential treatment vary greatly at other hospitals, but according to Dr. Charles E. Riordan, a clinical professor of psychatry at Yale University, public or not-for-profit private hospitals often charge $400 to $500 daily.

In another Florida case, Eileen Vinsand, the wife of a Palm Beach County firefighter, said the stay of her 10-year-old son, Jimmy, in the company's Fair Oaks Hospital in Boca Delray turned into the worst conceivable family horror. A school guidance counselor recommended that Fair Oaks evaluate the boy in 1988 for hyperactivity and behavioral problems. Asked About Insurance

She said the hospital's first question was whether he was covered by insurance and when that was confirmed he was promptly admitted. Mrs. Vinsand, who had been trained as a nurse, said she was subsequently told that she could not visit her son. But she said she forced her way into his room and that what she saw were actions unlike anything she had seen in him before: "He was having what looked like grand mal seizures. He was terrified. He was flipping his head back and stuttering and his eyes were running back into his head."

She said she demanded his release but the doctor in charge told her that her son had brain damage and if she removed him the hospital could have her rights of custody to the child taken away.

"I believed it," she said. "They play off your emotions. They have M.D.'s after their names. They are God."

Her son was released several days before his insurance ran out. She said Jimmy soon regained his normal health and has now outgrown his hyperactivity.

Why did she not sue? Because the child got better so quickly and "you don't sue God." Threat Is Reported

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Last January in Anniston, Ala., W.T. Gable, a retired insurance agent, said he took his 73-year-old wife, Elsie, who was having repeated nightmares, to the psychiatric ward at the Regional Medical Center. The ward is operated by Psychiatric Institutes of America.

Mr. Gable said that after a week he wanted to take her out of the hospital but that the doctor in charge refused to allow her to leave and quoted him as saying: "If you do, I'll fix it so that no a doctor in town will touch her."

Mr. Gable said, "I have witnesses who heard that." Mr. Gable said from the day of admission, a chart listed Mrs. Gable's release date as Feb. 6 -- the day her insurance ran out.

"Their intention was to keep her until the 6th," he said, "even before they knew what was wrong with her."

Last year, the medical director and the head psychologist on the ward resigned, saying patients were kept until their insurance ran out.

Psychiatric Institutes of America is one of several major companies that rapidly developed chains of investor-owned psychiatric hospitals in the 1980's. The number of beds in for-profit psychiatric hospitals in the United States grew to 37,500 in 1990 from 21,400 in 1984. The total number of such hospitals grew to 440 in 1988 from 220 in 1984. Increased Public Acceptance

The growth came as a result of increased public acceptance of psychiatric care, the growth of health insurance plans that paid for psychiatric treatment and the widespread deregulation of the hospitals in several states.

In places like Palm Beach County, one of Florida's affluent vacation spots, for example, the number of free-standing private psychiatric hospitals grew from one to seven, while other general-care hospitals also opened up psychiatric and drug and alcohol units. The same increase, from one to seven, took place in Dallas.

Although scattered complaints have been made about other companies, officials say they have not identified other for-profit hospitals for investigation.

And medical authorities are quick to point out that some of the new entrepreneurial hospitals are providing excellent care. Still, many psychiatrists said they were troubled by the companies' generally aggressive advertising campaigns and the premiums they put on getting and keeping patients with insurance. Florida Investigations

A spokesman for the Florida Attorney General's office said yesterday that his state's investigation was being handled by the its consumer litigation division, focusing on Fair Oaks and Lake Hospitals. The state insurance company's fraud division said it had begun its own investigation.

In Texas, where Psychiatric Institutes of America operates 13 hospitals, the Attorney General's office is suing the company to stop payment of $3.1 million in funds from a crime victim's compensation fund, which pays for victims' psychiatric services. The suit involves at least 125 patients.

In the suit, the state charges that patients were "subjected to unnecessary and expensive treatment programs, some of which are administered by persons not trained to safely conducte such programs." The state says it is also investigating charges that the company hired people it called bounty hunters to "infiltrate" meeting of Alcoholics Anonymous to find patients.

"They would simply kidnap various persons who didn't need treatment of any kind," said Ron Dusek, a spokesman for the Attorney General's office. "And once they got them into the hospital they held them against their will until the insurance claims ran out." Settlement in New Jersey

In New Jersey this summer, Psychiatric Institutes of America, which owns Fair Oaks Hospital in Summit, together with doctors there, agreed to pay a $400,000 fine to the state, the largest such settlement in state history.

Both sides agreed not to discuss the basis for the payment but the state said the investigation came in response to complaints from patients and staff members.

Officials familiar with the New Jersey inquiry said that in recent weeks Federal agents and the United States Attorney's office in Newark had joined a new investigation of Fair Oaks that involved charges of criminal insurance fraud.

Louis Parisi, who heads the New Jersey Insurance Department's investigation division, said the department had received more than 300 complaints from around the country about hospitals owned or operated by Psychiatric institutes of America.

Among the charges being investigated in New Jersey, state officials say, are those of Dr. Robert Stuckey, a psychiatrist who served as the medical director of the alcoholic unit at Fair Oaks from 1975 to 1985.

In an interview yesterday, Dr. Stuckey said patients were admitted who did not need treatment and that their diagnoses were shaped to take advantage of insurance coverage. 'Analysis of Insurance'

"The starting point was always their remarkable analysis of insurance," Dr. Stuckey said. "They were geniuses at assessing and diagnosing insurance."

He added: "They took people who didn't need psychiatry. "They took people who couldn't defend themselves and kept them in hospitals for months."

Critics of the hospitals in Florida say that the plight of patients may be best illustrated by the case of three children whose parents were divorced and who were were being confined unnecessarily at Fair Oaks at Boca Delray.

The children's father, George Pallay, has sued the hospital, saying that his children, aged 3, 8 and 9, had been held for six weeks until their insurance coverage ran out.

Mr. Pallay's lawyer, Theresa DiPaolo, said an investigation by insurance companies later found that the children did not need psychiatric hospitalization. --------------------

NEXT: Managed care controversy.

A version of this article appears in print on October 22, 1991, on Page A00001 of the National edition with the headline: COMPANY NEWS; Chain of Mental Hospitals Faces Inquiry in 4 States. Order Reprints|Today's Paper|Subscribe